17 June 2009

According to the backgrounder released on Tuesday, the provincial government’s oil company will acquire a 10% interest in only that portion of the extension to be developed through tie-backs.

That has been described as covering 170 million barrels, however, as with Hebron that figure may become smaller in the final agreement.

The acquisition price is $30 million however the backgrounder provided no estimates the development costs, operating costs or other costs associated with the project.

According to some sources, part of the delay in reaching the memorandum of understanding came from re-unitizing the existing licenses, especially EL 1093. There are seven interest-holders in that license with four of them having less than 10%.

As with Hebron, details of the acquisition agreement will not be made public. As with Hebron, information crucial to a thorough assessment of the acquisition and the provincial government’s share will remain hidden from public scrutiny.

Industrial and local benefits

Aside from existing benefits arrangements under the Hibernia development plan and offshore regulatory board regulations, no new or enhanced local benefits are contained in the backgrounder.

The project will be developed using a combination of slant drilling from the existing Hibernia platform (50 million barrels) and sub-sea tie-backs to the platform. This was not a part of the 2006 application.

However, planned expansion of the Hibernia GBS appears to have been shelved. This significantly reduces the potential amount of local work available. The project is smaller than what was suggested last June when the Premier indicated a Hibernia South deal would be in place by the end of 2008.

"We fully expect Hibernia South to be concluded by the end of this calendar year," Williams told more than 700 people attending the annual offshore conference hosted by the Newfoundland and Labrador Oil and Gas Industries Association (NOIA).

As it turned out, the MOU was signed in mid 2009 and final agreements are not expected until early 2010. That would be three years after the provincial government vetoed the development and two years after the oil companies originally planned to start production.

Local companies already have demonstrated expertise in supply and in fabrication of sub-sea components. Thus, local companies should be able to secure fabrication and related work on the project.

The province needs more information on what options exist for other modes of development to extract the oil from Hibernia South. This may have implications for overall benefits.

The lack of a Benefits Plan Amendment. This is a departure from the normal process and the CNLOPB did not require it in the "interest of expediency."

Through the MOU, the provincial government also accepts the offshore board’s position in the voted application with respect to local benefits (affirmative action, research and development and education and training).

This is significant since these aspects of local benefits were cited as an area of concern for the provincial government with the board’s approval of the plan. In a subsequent exchange of correspondence energy minister Kathy Dunderdale accused the offshore board of failing in its responsibilities for local benefits yet it appears the government has ultimately accepted what the companies initially proposed and board approved.